Reference no: EM131870558

Question - Cooper Grant is the president of Acme Brush of Brazil the wholly owned Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant's compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermined percentage of the pretax annual income earned by Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for the most recent year is as follows (amounts in thousands of Brazilian reals [BRL]):

Sales . . . . . . . . . . . . . . . . . . . . . . . . BRL10,000

Expenses . . . . . . . . . . . . . . . . . . . . . 9,500

Pretax income . . . . . . . . . . . . . . . . . BRL 500

After translating the Brazilian real income statement into U.S. dollars, the condensed income statement for Acme Brush of Brazil appears as follows (amounts in thousands of U.S. dollars [US$]):

Sales . . . . . . . . . . . . . . . . . . . . . . . . US$3,000

Expenses . . . . . . . . . . . . . . . . . . . . . 3,300

Pretax income (loss) . . . . . . . . . . . . . US$ (300)

Required:

a. Explain how Acme Brush of Brazil's pretax income (in BRL) became a U.S.- dollar pretax loss.

b. Discuss whether Cooper Grant should be paid a bonus or not.